8 mistakes people make that can drastically affect their financial health


At almost 500 posts here on this site over the past five years, you might be forgiven for feeling like you are drinking from the fire hose.

So here is an opportunity to keep it simple. Let’s talk about 8 mistakes people make that can drastically affect their financial health. I use the word “drastically” there for emphasis: this isn’t small stuff. These can have big results.

How many of these mistakes are you making?

1. Not taking the employer match

If you work in a job that offers a 401(k) or other retirement account, it’s generally a good idea to take it. It’s not the worst thing in the world if you don’t (assuming you invest elsewhere), but the automatic nature of investing can help you save more.

But if your employer offers a match on your contributions, and you don’t take it, you are missing out on the best financial investment you’ll likely ever have.

Many employers do something like offering a match up to 3% on your contribution. So if you put 3% of your paycheck into a retirement account, they will match you dollar for dollar. That is a 100% return on investment, no matter what you invest in. You’d have to work really hard to make that a bad deal.

2. Not investing at all

Scared the world is going to end? Believe that all business are scams and that you don’t want to contribute to the capitalist system?

I feel your pain, but maybe only a little bit of it.

As Tom Lehrer once sang, “I’ve always found ideals don’t take the place of meals.

What’s your plan for the back 9 of your life? Work for a wage until you die? What if you’re unable to do that, through illness or there being no more jobs anymore?

If you’re scared you’re going to lose money by investing, I have some sober news for you: you’re going to lose so much more money by not investing. Your money will be worth less and less over time due to inflation.

We all need to become millionaires. How are you going to do that without investing?

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3. Not keeping track of your spending

Track or you will fail.

Tracking your spending is one of the most important ways of controlling your spending. After all, how can you know what you’re doing if you don’t keep track of it?

It’s not uncommon to find that you’ve spent hundreds of dollars less in a month (without feeling pinched) just by keeping track. That can feel like getting an instant raise, and over time, that can all up to some serious investment power.

4. Spending more than you earn

If you spend more than you earn, even if it’s just a little bit, you will never get ahead. If you think that it’ll all work out in the future because you’ll make more money, that’s not how human behavior works. What you do now is the same as what you’ll do in the future.

If you get in a habit of spending more than you make (usually through the use of credit cards) that habit will remain no matter how much money you make.

Remember the SNL skit.

5. Using credit cards chronically

Speaking of credit cards, chronic use of them will almost certainly keep you from becoming wealthy.

Almost everyone will agree that keeping a balance on a credit card is a terrible investment. You pay a high (negative) interest rate on money that you could have paid zero percent on. When long-term investment is pretty much the only way to success financially, trying to offset a -12% interest rate is just folly.

But I go one step further, and suggest that it’s not much less folly to put all of your spending on a credit card. Yes, I love frequent flyer miles. I know you can get 1-2% cash back. It’s still not a good idea. You over-complicate and add risk to your financial picture by using credit cards as an intermediary step. That can cause you to lose track of your spending (see above), or even accidentally pay finance charges.

I don’t have a problem with putting the odd purchase on there and then paying off. Or maybe even using it for reimbursable work expenses if you don’t want to put up your own money. But aside from that, pay with money.

6. Not automating

Stop writing checks, people. Pretty much anyone can set up a bill pay service through your checking account. Enter your account info with all of your other bills so they can debit your account when the bills are due.

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And do the same thing with your investments. Set it up and forget about it. If you automate good behavior, you’re going to stick with it. Otherwise, you might want to do it, but life will get in the way.

Despite thinking about personal finance all the time, you’d be amazed at how little I “do” on a regular basis. Most of my stuff is automated. I just need to check it periodically.

7. Not having a cushion

If you are running a tight ship and are able to just make ends meet, you are in a very precarious position.

It’s like parallel parking with an inch of clearance, or walking right along the edge of a ridgeline. It’s fine as long as nothing unexpected happens.

Guess what? Life is one giant unexpected event.

So if you don’t have an emergency fund, or if you don’t have enough float in your account, you’re going to be in trouble when something unexpected happens. You need to be prepared for as many contingencies as possible. That keeps these incidents from becoming disasters.

And who wants a disaster?

8. Not believing that it’s possible

Achieving and maintaining financial health is hard. It not only takes work, it also takes resolve. It takes a certain amount of faith. Some steps you take you won’t see success from for years, or even decades.

That why belief is so important. Believing that you’re going to build wealth, gain security, and be okay is what keeps you going. Without it, you’re less likely to take the steps you need in order to get where you need to go.

I know that life can throw some serious challenges at you that can weaken your resolve. It’s not easy, and even if it’s easy for you today, it might not be easy tomorrow.

But a future in which you have achieved your financial goals is possible. People get there all the time, and not just people who had a head start. The more time you have on your side, the better positioned you are.

You can do this. And not believing you can might be the biggest mistake you could make.

Did I leave out a more important mistake? Please let me know in the comments below.

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